Finance minister Nirmala Sitharaman has presented her first budget. Many industry leaders, startup founders, and entrepreneurs felt that the Piyush Goyal-helmed interim budget in February had ignored their problems. The startup ecosystem, this time, is keen on to see what’s in there for them.
Here are 9 Key takeaways for startups, entrepreneurs and small and medium scale business owners from the Union Budget presented by the finance minister.
Burden on Consumer Logistics Startup
Government has proposed to increase special additional duty and road and infrastructure cess on diesel and petrol by ₹1. This measure has hiked the price of petrol and diesel by ₹2.50 which will eventually lead to additional expenses for startups like Dunzo, Swiggy, and Zomato. Several micro logistics companies including Milkbasket, Grofers, Bigbasket and several other startups whose business model depends on road transportation may suffer. The measure will also increase the input cost of raw materials for most of the industries and startups may have to deal with increased operational costs.
GST Returns Process Simplified
The GST rates have been eased with reliefs of ₹92,000 crore provided during the year. Businesses with less than ₹5 crore annual turnover will need to file a quarterly GST return. The FM said that a fully automated GST refund module shall be implemented. Multiple tax ledgers for a taxpayer shall be replaced by one. The Budget proposes to move to an electronic invoice system wherein invoice details will be captured in a central system at the time of issuance. This will eventually be used to prefill the taxpayers’ returns. There will be no need for a separate e-way bill. To be rolled out from January 2020, the electronic invoice system will significantly reduce the compliance burden.
Discouraging Business Payments in Cash
Nirmala Sitharaman has proposed a TDS of 2% on cash withdrawals of ₹1 crore or above from bank accounts for business payment purposes. This will adversely affect unorganized small businesses in tier II and tier III cities as most of the transactions in the unorganized sector is through cash mode. Moreover, several fintech and digital payment startups will benefit from the move. The use of UPI, Aadhaar Pay and credit and debit card methods will increase.
Major Reforms on Angel Tax
Startups who file requisite declarations and provide information in their returns will be exempted from scrutiny in valuations of share premiums. The government will introduce a mechanism of e-verifications to establish the identity of investor and sourcing of funds. After a year-long struggle by a number of startups, this policy change is the most welcome move as it will encourage more angel investors to invest in early-stage startups in the country. In line with the above proposals, the minister has also proposed that valuations at which private equity funds are raised by ‘companies in which the public is not substantially interested’ (which includes start-up companies) will no longer be questioned.
Relaxation on Corporate Taxes
Nirmala Sitharaman has proposed a lower rate of corporate tax (25%) rather than the earlier 30% tax for companies having an annual turnover of up to ₹250 crores. As most of the startups fall in this category, they are going to directly benefit the startup ecosystem. Sitharaman said the reduced tax rate would cover 99.3 percent of corporates in the country. This year the Finance Minister has proposed to increase the turnover limit to ₹400 crores to cover even more startups under the benefit.
Credit Boost for Public Banks
The public sector banks will be provided ₹70,000 crores to boost lending capacities which will directly benefit the small and medium businesses. As of 2018, around 50% of the credit supply in the MSME sector was through informal channels. The new schemes in addition to this improved lending capacity will transform the economy as more startups can have access to capital.
National TV Channel for Startups
The finance minister has proposed to start a television channel under the Doordarshan network exclusively for startups. The channel will be designed and executed by startups themselves to ensure the best quality content. The channel will promote new businesses and enable matchmaking with venture capitalists. Aside from funding, the channel will also provide resources for tax planning. In India, entrepreneurs had their first brush with TV in July 2017 with MTV’s youth-based reality show, MTV Dropout. But, as the name suggested, the show focussed only on college dropouts.
Benefits for EV Startups
Taking a bold step to achieve 15% electric vehicles adoption in five years, the government has announced an outlay of ₹10,000 crores. Additionally, the FM has also requested the GST Council to reduce the rates on electric vehicles from 12% to 5%. Furthermore, an additional income tax deduction of ₹1.5 lakhs on interest paid on loans taken to purchase electric vehicles is proposed to incentivize the adoption. Customs duty on certain parts of electric vehicles has been exempted.
Reskilling Programmes In Deeptech
Nirmala Sitharaman said that the government will focus on improving skills in the fields like Artificial Intelligence, Internet of Things, 3D Printing, Virtual reality, Robotics and Big Data which are highly valued and much demanded. Despite the plan is to prepare youth to become eligible to take up jobs overseas, this move will create a large pool of talent within the country. The startups in this sector find it difficult to outsource and hire skilled talent as the current education system does not focus on these areas.